Loeb's Third Point fund moves into Chesapeake

Sam Forgione, Svea Herbst-Bayliss

5 Min Read

NEW YORK/BOSTON (Reuters) - Activist investor Daniel Loeb may be gearing up for another boardroom battle after having amassed a big position in embattled natural gas producer Chesapeake Energy Corp (CHK.N),

Daniel S. Loeb, founder of Third Point LLC, participates in a panel discussion during the Skybridge Alternatives (SALT) Conference in Las Vegas, Nevada May 9, 2012. REUTERS/Steve Marcus

Loeb’s $8.7 billion hedge fund Third Point listed the embattled natural gas producer as its fourth largest position, according to emails the New York-based firm sent to several investors. Reuters reviewed a copy of the email.

The fund did not explicitly say whether Loeb has a net long position or a short position on Chesapeake. If an investor is long, he expects the share price to rise; a short position indicates he expects the stock will decline in price.

A person familiar with Third Point, who did not want to identified, said the hedge fund could have acquired its position through a combination of buying shares, debt and derivatives.

Third Point’s big move into Chesapeake was disclosed only hours before U.S. financial markets were ready to close for the July 4 holiday but still managed to generate waves.

Chesapeake has been making headlines itself in the recent months as Aubrey McClendon, its chief executive officer, has come under fire for taking out more than $1.3 billion in personal loans from a firm that also does business with Chesapeake. The loans were first disclosed by Reuters.

Chesapeake’s share price has tumbled 37.77 percent in the last 52 weeks to trade at $19.36, far below the $50 per share that several shareholders see it trading at in the future.

The company’s relatively cheap share price plus the recent restructuring of the board might make for exactly the kind of conditions that activist investors like Loeb seek out.

Known for his acerbic tongue and penchant for overhauling management at some of America’s best-known companies, including Yahoo, Loeb has delivered a string of successes in the last years, treating his clients to annualized returns of 21 percent.

Loeb did not respond to an email seeking comment about his hedge fund’s move into Chesapeake, which appears to have occurred in the past month.

Chesapeake recently restructured its board, giving more power to activist investors Carl Icahn and O. Mason Hawkins of Southeastern Asset Management, who are two of the energy company’s largest shareholders.

Loeb reported to investors that his other top positions are Yahoo Inc YHOO.O, gold, Delphi Corp.(DEE.TO) and Apple Inc (AAPL.O). Several investor sources said Loeb is believed to be “long” in all of the companies.

During the first six months of the year, Loeb’s biggest portfolio, the Third Point Offshore Fund, has gained 3.9 percent while the Third Point Ultra fund was up 6 percent and the Third Point Partners Fund is up 4.5 percent.

Over the years, Loeb has frequently fired off letters to boards and executives who were not performing up to his standards. Most recently, he tangled with Yahoo, winning a victory by picking up three board seats, including one for himself.

Loeb was also successful in getting former Yahoo CEO Scott Thompson ousted after discovering that Thompson, who had been on the job only for a few months, had falsified his resume.

Loeb first cut his teeth in the energy sector by having taken on energy company Pogo Producing Co a few years ago. He got the company to expand its board, securing two seats for himself and associate. The company was later acquired by Plains Exploration & Production Company.

Indeed a potential sale has been on the minds of other investors as well. Southeastern Asset Management’s Hawkins suggested two months ago that Chesapeake should consider selling itself. And both Hawkins and Carl Icahn, who also recently took a stake in Chesapeake, have both indicated that Chesapeake’s share price is still undervalued.

“Chesapeake is at the full position to have the best assets, so shame on us if we don’t produce a lot of earnings and a lot of cash flow,” Hawkins said.

Although Loeb has not disclosed his intentions for Chesapeake, Noster Capital’s Pedro Noronha, who was among the first to publicly call for the board to terminate its chief executive officer, said he welcomed Third Point’s involvement.

Icahn sounded an even more definitive tone this week. In a CNBC interview on Monday, Icahn said that shareholders have taken control of the company and that it can fill its income gap by cutting costs.

“I think natural gas in the next few years is going to go quite a bit higher, and Chesapeake will be there to take advantage of it... I would not sell it at all now,” Icahn said.